Will price premiums be a roadblock to the adoption of next-generation broadband in Europe?

28 апреля 2012

If customers see an advantage in services with access speeds of
100Mbps or more, and are willing to pay for them, next-generation
access operators are likely to maximise revenue by continuing to charge a
price premium for such services.

Fixed broadband
operators throughout Europe tend to charge a premium for next-generation access
(NGA) services. In this article, we discuss whether such premiums could
undermine the target set by the Digital Agenda for Europe (EDA) of reaching 50%
household penetration for services with an access speed of 100Mbps or more by
2020.

Definitions of NGA
vary, although here we assume that NGA refers to broadband services with an
access speed of 30Mbps or more.1 The most-common fixed technologies that are
capable of providing these speeds are fibre-to-the-cabinet (FTTC),
fibre-to-the-premise (FTTP) and cable. At the moment, cable broadband is the
most widespread form of NGA because most European cable operators have upgraded
– or are in the process of upgrading – their networks to the DOCISIS3.0
standard, which enables their networks to provide speeds of 100Mbps or more.
Fibre services are also emerging throughout Europe, and are widely available in
some countries (such as Slovenia).

Tiered pricing structure

Almost all cable
operators in the 31 European countries we sampled use a tiered pricing model
that allows them to extract the maximum value from their fastest products
while maintaining a minimum level of service (the coaxial part of the
network could become congested if all customers subscribed to the highest
speeds).2 These price premiums can be significant: 100Mbps single-play
cable services are on average 54% more expensive than 30Mbps services (see
Figure 1).

FTTH networks –
particularly those that use point-to-point architecture – are less likely
to suffer from congestion at the access point, and it appears that fibre prices
in Europe are typically lower than cable prices.3 The price premium for
high-speed fibre services is significantly lower than that charged by cable
operators: on average, single-play fibre services with speeds of 100Mbps or
over are only 7% more expensive than 30Mbps services – and in some cases
they are even the same price as standard broadband services.

The issue of take-up

To date, the take-up
of NGA services has been low in most European countries for several
reasons, including Internet users' failure to see the benefit of NGA
compared with standard broadband in some cases. As a result, some
operators such as BT in the UK are charging a low or negligible price premium
for fibre services in order to encourage their ADSL customers to migrate to
NGA. We estimate that cable networks pass 51% of European homes, while fibre
networks cover only 25% of homes. However, cable operators may be forced to
reduce the price of their high-speed offerings as fibre coverage and take-up
increase.

Looking ahead

If customers continue
to perceive no advantage in 100Mbps speeds compared with, for example,
10–60Mbps speeds, then they are unlikely to be prepared to pay a price
premium for them. However, if customers do recognise value in 100Mbps services
and are willing to pay for them, NGA operators are likely to maximise revenue
by continuing to charge a price premium for such services. Therefore, even if
the basic subscription cost of an NGA connection becomes comparable with that
of a basic broadband connection, and operators are able to migrate standard
broadband users over to an NGA technology, there is still likely to be a price
premium for the fastest services. This could represent a significant roadblock
to reaching the goal of 50% household take-up of 100Mbps services in the Europe
Union. Some member states may achieve 50% coverage of households with
a 100Mbps-capable network by 2020, but it is less likely that all of these
households will actually subscribe to 100Mbps services.